Migration, FDI, and the Margins of Trade

            This blog is about a working paper named “Migration, FDI, and the margins of trade” by Maurice Kugler and Hillel Rapoport. It mentions the relationship between migrations, FDI and trade by heterogeneity firms. I have interest in this one since it provides more information about other aspects of migrations. It encourages the development of FDI and trade. In the section 2, they present formulas and charts to show the relationship between export and FDI and test it by actual data. Sections from 3 to 5 are description of data they used, empirical methodology and the results. 

            In class, we learnt that migrations, especially high-skills labor, will benefit us in long term, and it is true. In 1990s, the growth rate of international trade was doubled, the growth of global FDI was triple the growth rate of international trade flows. Seeing those benefits, receiving countries make restrictive immigration policies to increase high-skill labors and decrease low-skill labors. As a result, from 1990 to 2000, in OECD countries, high-skill immigrants had increased 70%, but low-skill labors were also increased by 13%. 

            How did they help both receiving countries and sending countries? A simple sample is the migration of China labors to America. In most of big cities in the U.S., I always see areas named China Town which has a lot of Chinese and Chinese stores and companies, so Chinese companies have FDI here. Therefore, the growth of FDI in term of China is increasing. However, when those labors go into America, they also bring with them a fair amount of information about cultures and business opportunities in China. Therefore, American investors can base on that information and have foreign direct investment in China. Then the FDI in term of America will increase. The trade will increase as well but less than FDI since immigration also transmit information about production facility which is more useful for companies having FDI. In another word, they reduce the fixed cost in collecting data and investigating for companies want to have FDI. Besides, the paper also mentions that “a one percent increase in the extent to which a firm's pool of inventors is comprised of a certain ethnicity is associated with a 0.1 percent increase in the share of affiliate activity conducted in the country of origin of that ethnicity”. Therefore, even the labors work in different countries, but they can still benefit their home countries.    

http://www.hks.harvard.edu/var/ezp_site/storage/fckeditor/file/pdfs/centers-programs/centers/cid/publications/faculty/wp/222.pdf